Here's an email he sent this morning,
"Hi Brandt,
It's interesting to see how everyone has gone bearish still after the
rally yesterday. The LDI admitted he bought IWM puts on Friday and
closed them at an immediate loss same day. Technically people see no
reason for any sustained rally and see an opportunity to short the
indexes at any sign of weakness."
The "LDI" are the initials of a trader who is ALWAYS wrong, so much so we track what he's doing just for fun as a contrarian indicator, we call it the "LDI Indicator"
In any case, Sam points out, everyone is still very bearish and Technically people see no
reason for any sustained rally and see an opportunity to short theindexes at any sign of weakness
Sam and I are on the same page, he's been around WOWS for a long time and has a great nose for the market and the games Wall Street plays.
The point here being, as I have mentioned nearly every time I bring up the probability of a strong bounce, "There's no reason to move the market higher if it's not going to shift sentiment, squeeze shorts, get the bears to start second guessing their views and maybe, just maybe if the move is strong enough, to lure in unsuspecting bulls and set a bull trap which will add downside momentum when the bounce reverses.
What traders are feeling is exactly right, Technically THERE IS NO REASON FOR A RALLY, TECHNICALLY.
However after years of observing 3C and the market, you begin to realize that short term trading action has NOTHING to do with the market's discounting mechanism or what's left of it. Short term trade, bounces, counter trend rallies, etc. are all used simply to make the most number of traders wrong at any one point in time and with everyone leaning to the bearish side of the boat, Wall Street can't make money trading with the very same sheep they are trying to fleece. Technically there's no reason, psychologically there is a reason, Squeeze the shorts, set up better entries in short positions, make a quick buck on the move up and hopefully trap some bulls to add extra momentum to the next leg down. This is what Wall Street has always been in some form, whether brainwashing generations of retail investors in to believing "Buy and Hold" is a sound strategy or "Dollar Cost Averaging" on a losing position is a sound strategy, the propaganda goes something like this, "If XYZ was a good deal at $40, it's a STEAL at $20!"
These are generational themes that Wall Street used especially before the advent of online brokers. For 1 it kept money in funds like Mutual funds that almost ALWAYS lose money in a bear market as long only funds. It keeps everyone's 401k in the fund and people buy this non-sense or at least they did.
Now that people trade their own accounts via cheap online brokers (the days of an $80 broker trade are long gone), the game has shifted more heavily in favor of short term manipulation of the markets. Once you realize this and can spot it, it becomes an advantage you have over the masses, this is how we built our short positions, by shorting price strength that the herd of sheep were buying.
In any case, every top is different and they all get very unpredictable just before the landslide move down. While I firmly believe the probabilities are for a strong bounce or counter trend move up a we have seen start, the details of how that unfolds are much harder to predict, that's why we watch the market every day closely and update it. A move up could be a 3-5 day non stop rip-fest to the upside, it could also be a few days up, a couple of nasty days down to lock in more shorts and continue higher. The point is as things get more unpredictable, the "How" becomes difficult to predict, the "Why?" is much easier and the overall idea is quite simple. I've believed in this final move up, I've stuck with my beliefs for one reason, EVIDENCE. We'll have to see how this all plays out, what the tactics will be, but the strategy is much more simple-I won't repeat it, but it's above and starts with "Squeeze the shorts..."
This is where patience pays off, LET THE TRADE COME TO YOU! It's emotionally difficult to go long some speculative longs for a bounce when the market is in a free-fall, but that's exactly what many of us did and we are seeing the rewards, whether it's to make a little extra $, to hedge shorts or both.
My Speculative AAPL June $540 calls are up over 65% this morning, and my AAPL short is still doing fine although I have accepted the fact I'll see some draw down i those shorts on a bounce higher, but it's not worth it for me to try to get too fancy right now in trading around positions.
Keep in mind, most of what you see in price action is deceptive. This mov higher has no fundamental reason, there's no technical reason (especially after this morning's US data), there is a psychological reason and when you understand how the heard will react, Wall Street itself becomes a lot more predictable.
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